NEW YORK (8/4/15)--When it comes to auto loans, a 0% interest rate is a head-turner, but it’s not always the best deal.
Car dealerships generally advertise 0% offers in the summer when they’re looking to make room in the showroom for newer models. The offers come from the financing arms of the large auto manufacturers, which unlike traditional lenders profit directly off the sale of the car and don’t necessarily need the interest revenue (Associated Press July 29).
But like any great deal--there’s a catch. The New York Times (July 8) reports that only about 10% of consumers actually qualify for 0% interest loans, which require pristine credit--usually a FICO score of 720 or higher. Those loans typically are reserved for a limited number of models and are not available if you’re shopping for a used car--which tend to cost less than newer models.
These 0% loans often are paired with shorter-term loans, which cost you less overall but mean a higher monthly payment.
Before you head to the dealership, keep these points in mind:
For related information, read “Help Your Teen Afford the Right Car” in the Home & Family Finance Resource Center.